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1 Setfords Legal Guides For Business Debt Recovery T:

2 Debt Recovery We understand that your debts need to be recovered quickly and efficiently. Our experienced team offers advice on the most cost-effective way to pursue your commercial and consumer debts. Credit Control Incorporating solicitors into your credit control procedure can be extremely beneficial to your business, and having a good system for credit control in place in the first instance, means that when required, debt collection is easier. Often, a business will want to maintain a good relationship with their customers, but it is vital to move quickly when credit terms have been exceeded to avoid a negative impact on the businesses cash flow. Review your sales ledger A fundamental element of credit control is to know precisely when an invoice exceeds its credit terms. Without this knowledge, debt recovery will not begin on time and your credit control process will lose its efficiency and punctuality. It s therefore important that your accounts department or credit controllers regularly review your sales ledger to ensure that your customers payment activity is always observed. Credit control should be regarded as one of the business key tasks, and this process should go hand-inhand with the updating of your cash flow forecast. Chase as soon as credit terms are exceeded Once an invoice exceeds its credit terms, it is vital that you implement your credit control procedures and ascertain why you haven t been paid. The likelihood of collecting the debt in full decreases as it grows older. As mentioned, it is often the fact that you want to maintain good working relationships with your customers. It is therefore important to provide an explanation to your contact in these early stages what your company s procedures are for the collection of outstanding debt. You may want to refer to your payment terms and conditions at this stage and advise the debtor of interest charges and potential legal action if the account remains unpaid. It is important to stick to your company s procedure and deadlines for these instances, but also to react to their position. If you have several debts that are beyond terms, focus your attention on the high risk debts (i.e. the largest or the oldest, or those with companies that are in financial trouble) above the smaller and newer debts. All correspondence must be logged, detailing who you spoke to and when, as well as what was said. This should be done throughout the entire credit control process, but it s particularly important once the invoice is due.

3 Finally, pick up the phone. You re much more likely to make an impact over the phone than through letters or s, whilst it is also easier to recognise when they are stretching the truth. Take action Despite the fact it s rightly yours, asking businesses for money they owe you can be a daunting task. What must be remembered is that, by not paying on time, they have damaged your business cash flow and taken advantage of the trust you afforded them by offering credit terms. On most occasions, however, your customer wants to pay you, so you must work with them to ensure they settle the debt quickly, and in full. The best tactic in most cases is therefore mediation, adopting a polite but insistent approach that demonstrates how you value them as a customer, but also your intolerance for late payment. By initially explaining your step-by-step policy when collecting outstanding debts, you can create a persona of professionalism and power. Always pick up the phone to your customer and speak to the person dealing with your invoice, reminding them of your right to charge interest on the debt under the Late Payment of Commercial Debts (Interest) Act Only if this approach doesn t work should legal action be considered, beginning with a Letter Before Action that signifies your intent to enter court proceedings if the invoice is still unpaid after another seven days. Charge interest Unless you have stated a specific rate of interest in your Terms and Conditions, interest can be claimed under the Late Payment of Commercial Debts (Interest) Act This Act allows businesses to charge interest on debts that have exceeded credit term at a rate of 8% above the Bank of England Base Rate (currently 0.5%) from the day the debt becomes overdue. You are also eligible to claim compensation charges for the late payment as follows: 40 if the debt is under if it s between 1,000 and 9, if it s over 10,000 Even if you have specified a lower rate of interest in your terms and conditions then you can still make a claim for interest under the Late Payment of Commercial Debts (Interest) Act in the alternative and the Court will have discretion as to which rate to award. If there is no agreed credit period, then the Act sets a default period of 30 days after which interest can run. This default period does not constitute a statutory credit period. Where no credit period is agreed in a contract, the principal debt will still become due from the moment the goods are delivered or the service performed. The 30 day default period starts running from the latter of the following actions: The delivery of the goods or the performance of the service by the supplier. The day on which the purchaser has notice of the amount of the debt. A payment is late once the agreed period or the default period has expired. In the case that there is no agreed credit period but the purchaser usually pays at the end of the month following the month in which the invoice is received, the credit period is considered to end on the last day

4 of the month following the month in which the invoice is received. In this case, interest will start to run from the next day. Where either the purchaser is dealing with a new supplier or there is any other reason to doubt whether this kind of arrangement can be regarded as established practice between supplier and purchaser, the purchaser should ensure that there is an agreed credit period, otherwise the default period of 30 days may apply. Informing your customers of this statute should give them an added incentive to settle the invoice as soon as possible, whilst claims can be made at any point during the following six years. Terms & Conditions of Business It is important to review the Terms & Conditions of Business you offer your customers on a regular basis. Ineffective terms and conditions could make your business vulnerable to payment disputes that can be easily avoided. As an example, the payment clauses of your terms and conditions should include: Payment terms: stipulate when the invoice is payable by, i.e. 30 days from date of invoice. Interest clause: in a business to business transaction you can recover interest and compensation charges under the Late Payment of Commercial Debts (Interest) Act For clarity to your customers, you should specify this legislation in the interest clause unless you wish to claim a different specific rate. Time frame: specify to the customer the time frame in which the customer has to query the goods/ services supplied and specify how this query should be made, i.e. in writing. Retention of title: you may want to specify that the title to any goods supplied remain with you until payment is settled in full. A jurisdiction clause: that any claims and proceedings will be subject to the law of England and Wales. Terms & Conditions should be provided and/or made available prior to any contract being agreed with your customer. It is a good idea to include them as part of your account opening/credit opening procedures you have for new customers. Ensure that they are directed to the terms and conditions and ask them to be signed and a copy returned to you to confirm this. This offers you greater protection if a dispute arises that is covered by the terms and conditions. Personal and/or directors guarantees Requesting personal and/or directors guarantees to be completed as part of your account opening/credit opening procedures will offer you further protection if the business you are dealing with is a limited company. If the limited company goes into administration or liquidation the chances of you recovering your outstanding invoices declines. By having a personal or directors guarantee you increase your prospects of recovery as this allows you to also pursue who ever has signed the guarantee personally for payment of the outstanding monies due to you. Knowing your debtor Before you embark on debt recovery proceedings, it is worth establishing that your debtor is worth pursuing and has physical assets and funds to repay you.

5 Individual and sole traders If your debtor is an individual or sole trader, their assets may include, a vehicle, equity in a residential home or commercial property. We can assist you in ascertaining whether your debtor has any assets by undertaking a search with Land Registry, investigating whether they are subject to an Individual Voluntary Arrangement or Bankruptcy Order and finding out whether they have any County Court Judgment s registered against them. Companies For companies, we can carry out company checks on your behalf to investigate whether the company is the subject of any insolvency proceedings and whether they have any County Court Judgments against them. Our Services The following is a brief overview of the range of services that we offer and our related costs. Pre-litigation collections No Collect No Fee Collections Service for undisputed debts, pre- litigation. This usually includes a three letter and three telephone call service. If we recover your debt after this process our fee will be based on a percentage of the amount recovered. Age of debt 0-60 days 10% days 12% days 15% days 18% 361+ days 25% Our charge Letters before action We offer various letters before action depending on your requirements. These letters can be sent by post, fax and at no extra charge. Type of letter Our charge Standard demand letter 15 Letter before claim 20 Winding up letter 25 Guarantor letter 20 Notice of dishonour of payment 20 Bespoke letter Quote on application

6 County Court Action Issuing County Court Proceedings to recover your debt. Amount of debt Court fee Our charge Recoverable Up , , , , , , , , , , , , , , , , ,000 1, , , ,000 1, , , ,000 1, ,575 Over 300,000 or an unlimited amount 1, ,630 County Court Action Amount of debt Judgment in default of acknowledgment Judgement in default of defence Judgment on defendant s admisson , Recoverable , Recoverable Judgment on admission - Court decides payments Enforcement of judgments Including; instruction of High Court Enforcement Officers, County Court Bailiffs, Charging Orders and Attachment of Earnings. County Court Bailiffs For debts less than 750 we can instruct a county court bailiff to execute a warrant to recover your judgment debt. Similarly to the Sheriff they will make an attendance on the defendant and auction any goods they can seize. Our charge for instructing the bailiff is detailed below. The bailiff will take their costs for storage and selling the goods before forwarding any balance to us. If the bailiff is unable to recover the debt, they will return the warrant to the court. No further fee is payable

7 unless you want to reissue the warrant at a later date. The court fee for re-issuing a warrant of execution is 25. There are some items that the Sheriff and Bailiff cannot seize including: Equipment the defendant requires as tools of his trade Vehicles on Higher Purchase agreements (HP) Essential household items, i.e. bedding Any items that have been leased, i.e. office furniture Recoverable costs on a warrant of execution are limited to 2.25 plus the court fee of 100. High Court Enforcement Officers (Sheriff) For debts in excess of 750 we can instruct the Sheriff to attend the Defendant s address to make contact with the defendant or seize goods to the value of the outstanding judgment debt. If goods are seizes, they will be auctioned and the proceeds, after deduction of the sheriff s costs, will be used to cover the judgment debt due to you. The sheriff s collect their fees directly from the defendant; this means there is more of an incentive for them to make recovery in costs in addition to the court fee of 60 is also recoverable from the debtor. If the sheriff is unsuccessful in recovery they will charge their abortive fee of 60 plus VAT. Charging Order A charging order application can be made to the court to secure the judgment debt owed to you against the defendant s property. The defendant will not be able to sell the property without first settling the charge (judgment debt plus fixed costs). A hearing date and interim charging order will be granted on application and the defendant will have the opportunity to oppose the application at the hearing. At the final hearing, if there is no objection by the defendant, a Final Charging Order will be granted for the judgment debt and fixed costs. Recoverable costs Fixed Costs 110 Court Fee 100 Land Registry Fee Official Copy Entries 4 Land Registry Fee Registering Order 50 Total recoverable costs: 264

8 Attachment of Earnings An Attachment of Earnings Order is an order made by the court for money to be deducted directly from the defendant s earnings, by their employer. The court can order deductions if: The defendant is behind on their installment payments under a CCJ The defendant is an employee (not self-employed or on benefits) There is more than 50 outstanding on the judgment The application process involves the court writing to the defendant and requesting them to complete a form detailing their employer details, income and outgoing expenditure and providing them an opportunity to make an offer of payment. Using this information the court will assess the minimum amount of money your debtor needs to live on. This is known as the protected earnings rate. If the debtor earns less than their protected rate, a payment will not be deducted from their earnings. The attachment of earnings order will set out the monthly deductions that will be made by your debtor s employer and what their protected earnings rate is fixed costs in addition to the court fee of 100 on the application are recoverable. Third Party Debt Order This is an application to the court to request payment of your judgment debt from a third party. This is usually a freeze on the defendant s bank account to the value of your judgment debt and a request to have these funds transferred to you. We will need the defendant s bank details to enable such an application. On application an Interim Order is made and a hearing date set. The Order is first served on the third party and then seven days before the hearing, on the defendant. If there is insufficient funds in the account to satisfy your judgment we will be advised of this. If a bank, they will either agree to a moratorium on the amount in the account or advise of insufficient funds and we will have to request the application is withdrawn and the hearing vacated. Recoverable costs in addition to the court fee are; one-half of the amount recovered if the amount recovered is less than 150, otherwise Order to Attend Court for Questioning (Oral Examination) An application for a defendant to attend court for an oral examination is one method that can used to find out more information about the defendant s finances and assist you in what type of enforcement action to take. The Court will issue an order that needs to be personally served on the defendant. Costs, in addition to the court fee that are recoverable; 15 for each half hour or part, however, if the questioning takes place before a judge, he may summarily assess any costs allowed.

9 Enforcement Type Our charge Court fee Other Disbursements High court enforcement (Sheriff) Abortive Fee if unsuccessful in enforcing writ - 60 plus VAT County court Bailiff Charging order Land Registry Fees (incl. registration at Land Registry) Agent / Counsel Fee for Hearing - variable Attachment of earnings Third party debt order Agent / Counsel Fee for Hearing - variable Oral examination Process Server variable Insolvency Proceedings Including Statutory Demands, Bankruptcy and Winding-up Proceedings. Liaising with official receiver and insolvency practitioners after a Bankruptcy or Winding up Order for completion of proof of debt forms proxy forms and attendance at proxy meetings. Winding up or bankruptcy proceedings can only be issued if the debt is over and there is no dispute regarding the debt. Such claims are known as class acts as the proceedings are considered to be brought on behalf of all creditors of the individual or company. Before winding up proceedings can be initiated the debtor needs to be put on notice of the creditors intention to take such action. A three-day demand sent by post, fax and is sufficient notice, however, a statutory demand allowing the debtor 21 days in which to make payment can also be used. In bankruptcy proceedings, the debtor is normally first served with a statutory demand detailing the amount claimed and how the debt was incurred. It is not necessary to serve a statutory demand in either proceedings if you have a judgment against the debtor. Proceedings can be instigated immediately as a method of enforcement. However, from a costs perspective, we would generally recommend putting your debtor on notice first. Our charging for preparing petition(s) Court fee Other Disburements Statutory Demand 100 Process Server 100 plus VAT Bankruptcy Proceedings incl. official receivers deposit Winding up Letter 25 per address Winding up Proceedings 400 1,135 incl. official receivers deposit Process Server variable Counsel s Fee - variable Process Server variable Company Reports - 40 plus VAT. Counsel s Fee variable

10 Disputed and Defended Actions We have an experienced Litigation team to handle and advise on your disputed and defended claims. If you are aware of any legal expenses insurance that may cover your legal costs you should contact us immediately and make the necessary enquiries to satisfy yourself as to whether it will cover your costs (or that of a third party). If you wish to consider taking out after the event insurance to cover your claim then again please contact us. Partner 275 Senior Solicitor 210 Solicitor 180 Senior consultant Solicitor Consultant solicitor 180 Legal executive / Licensed Conveyancer 150 Consultant legal executive 150 Trainee Solicitor 110 Hourly rate (ex. VAT) Service Charge Arrears We can offer a tailored collections service for recovery of your service charge arrears which includes demand letters and county court proceedings with legal costs recoverable from your debtor. Our charge Disbursements Letter before action 65 Letter to mortgagee 255 Obtaining Official Copy Entries - 4 Obtaining Copy Lease - 20 Issue court proceedings 400 Court Fee variable dependent on debt value Section 146 Notice Disputed / Defended Actions 150 hourly rate Our debt recovery team also has close links with process servers, enquiry agents and lawyers in other jurisdictions who are able to provide services which include tracing your missing debtor, serving court papers and issuing your claim against debtors outside of England and Wales.

11 Instructing us At the outset of your instruction, in matters where there is no known dispute, the only information that we require from you are the debtor s name, address, telephone number, fax number and the amount due together with a brief description of how the debt was incurred, i.e. for goods sold and delivered. We accept instructions by fax and . For further advice or information please contact Ann Laylo on or Services for businesses Purchase or sale of business Partnership Agreements Debt Recovery T & C of trading Security Documentation Commercial Contracts Exit Strategy Data Protection Distribution Agreements Franchise Agreements E-Commerce IP Protection Corporate Finance Commercial Property Dilapidation costs Rent Reviews Employee Issues Employee Handbook Health & Safety Credit Risk & Contro Business Structure & Constitution Partner/Director/ Shareholder Disputes Purchase or sale of assets or shares Joint Venture Agreements This content is for information purposes only and does not constitute legal advice. For detailed legal advice please contact us and we will be happy to assist. No liability can be accepted in relation to any reliance on the content of this guide. Copyright in this publication belongs to Setfords Solicitors. Extracts may not be copied without our express permission. Setfords Solicitors is a trading name of Meaby and Co Solicitors LLP. Our registered number is OC Our registered office address is 2 Camberwell Church St Camberwell Green London SE5 8QY. We are regulated by the Solicitors Regulation Authority SRA number

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